Saturday, July 06, 2013

Austerity Won’t Work if the Roof Is Leaking, by robert Frank, Commentary, NY
Times: I Recently spent a week in Berlin, where the entire city seemed
under construction. In every direction, cranes and other heavy equipment
dominated the landscape. Although many projects are in the private sector,
innumerable others — including bridge and highway repairs, new subway
stations and other infrastructure work — are financed by taxpayers.

But wait. Hasn’t Germany been one of the most outspoken advocates of fiscal
austerity after the financial crisis? Yes... But they also understand the
distinction between consumption and investment. By borrowing, they’ve made
investments whose future benefits will far outweigh repayment costs. There’s
nothing foolhardy about that. ...

The Germans didn’t become bogged down in debate over stimulus policy, and
they didn’t explicitly portray their infrastructure push as stimulus. But
that didn’t hamper their strategy’s remarkable effectiveness at putting
people to work. ...

Now austerity backers urge — preposterously — that infrastructure repairs be
postponed until government budgets are in balance. But would they also tell
an indebted family to postpone fixing a leaky roof until it paid off all its
debts? Not only would the repair grow more costly with the delay, but the
water damage would mount in the interim. ... The logic is the same for
infrastructure.

Austerity advocates, who have been wrong at virtually every turn, are
unlikely to change their minds about stimulus policy. But... Our best
available option, by far, is to rebuild our tattered infrastructure at
fire-sale prices. If the austerity crowd disagrees, it should explain why in
plain English.

Comments

You can follow this conversation by subscribing to the comment feed for this post.

'Austerity Won’t Work if the Roof Is Leaking'

Robert Frank:

Austerity Won’t Work if the Roof Is Leaking, by robert Frank, Commentary, NY
Times: I Recently spent a week in Berlin, where the entire city seemed
under construction. In every direction, cranes and other heavy equipment
dominated the landscape. Although many projects are in the private sector,
innumerable others — including bridge and highway repairs, new subway
stations and other infrastructure work — are financed by taxpayers.

But wait. Hasn’t Germany been one of the most outspoken advocates of fiscal
austerity after the financial crisis? Yes... But they also understand the
distinction between consumption and investment. By borrowing, they’ve made
investments whose future benefits will far outweigh repayment costs. There’s
nothing foolhardy about that. ...

The Germans didn’t become bogged down in debate over stimulus policy, and
they didn’t explicitly portray their infrastructure push as stimulus. But
that didn’t hamper their strategy’s remarkable effectiveness at putting
people to work. ...

Now austerity backers urge — preposterously — that infrastructure repairs be
postponed until government budgets are in balance. But would they also tell
an indebted family to postpone fixing a leaky roof until it paid off all its
debts? Not only would the repair grow more costly with the delay, but the
water damage would mount in the interim. ... The logic is the same for
infrastructure.

Austerity advocates, who have been wrong at virtually every turn, are
unlikely to change their minds about stimulus policy. But... Our best
available option, by far, is to rebuild our tattered infrastructure at
fire-sale prices. If the austerity crowd disagrees, it should explain why in
plain English.